Venture Debt and Financing
MDV has met a number of founders and their team. Many have shown their passion and commitment to their businesses. Most are keenly aware of their online and offline rivals, locally and abroad. A few are able strategically plan and source for the right type of funding, at the right time with the right capital providers.
Success very much depends on how the C-suite use their Fundraising Toolbox. Venture capitalists remain the go-to people for startups. The emergence of crowd-funding platform in Malaysia provides another alternative. A new third funding source is Venture Debt or Venture Finance, where loans or Shariah-compliant financing is extended to VC-backed companies to complement the VC financing received.
Overall, debt or financing will be cheaper than equity, and may be utilised for costs and expenses such as working capital or for bridging equity rounds. Financing may be structured as term or revolving, depending on requirements. Business development costs, say expansion into a new market, where returns are expected over the medium term may be structured as a term financing. MDV typically structures such financing over 3-5 years, where the first year may see only interest or profit payments and principal repayment or payment commence on 13th month onwards. Monthly repayments or payments may also be structured as step ups according to cashflow growth.
Revolving financing are typically to bridge working capital expenses until the next cash inflow or receipt of payments from customers. Upon payment, the limit extended may be drawndown again.
The next article will focus further on the term sheet for venture debt or financing.
-Nizam Mohamed Nadzri, CEO